What Dividend Yield Actually Measures
Dividend yield answers one specific question: how much cash income does a stock pay each year, relative to what it costs today? It says nothing about whether the price is fair, whether the dividend will grow, or whether the company can keep paying it, just the income-to-price ratio at this moment.
Dividend Yield Formula:
Dividend Yield = (Annual Dividend Per Share ÷ Current Stock Price) × 100
A related but different number is yield on cost: the current dividend divided by what you originally paid, not what the stock costs today. It measures how your personal income stream has grown, and it can look very different from the current yield once a stock has moved a lot since you bought it, a stock bought at $50 that now pays $4 annually has an 8% yield on cost even if new buyers today, at a $100 price, are only getting 4%.
Yield, DRIP Growth, or P/E — Which Question Are You Actually Asking?
"Dividend yield" gets used loosely to cover three genuinely different questions, and each has its own calculator on this site for a reason.
- How much income does this pay right now? That's this calculator, a snapshot based on the current price.
- How does that income compound if I automatically reinvest it for years? That's a share-count and compounding question, not a yield question, and it's what the Dividend Reinvestment (DRIP) Calculator models, it tracks how many additional shares your dividends buy over time, which grows future income even if the yield itself never changes.
- Is the stock's price actually justified? Yield says nothing about that. A stock can carry an attractive yield and still be expensive relative to its earnings, or a low yield and be cheap. That's a valuation question, and it belongs to the P/E Ratio Calculator, not this one.
Worked Example: A $100 Stock Paying a $4 Dividend
Using this calculator's default inputs, a $100 share price, a $4 annual dividend, 100 shares, and 5% expected annual dividend growth, here is what the numbers produce:
- Current yield: $4 ÷ $100 × 100 = 4%
- Annual income: $4 × 100 shares = $400
- Per-payment amount (quarterly): $4 ÷ 4 = $1.00 per share, or $100 per quarter across 100 shares
- Dividend after 10 years of 5% growth: $4 × 1.0510 ≈ $6.52 per share
- Running yield on today's $100 price by year 10: $6.52 ÷ $100 ≈ 6.52%, this rises purely because the dividend grew while the price in this projection is held flat; a real stock's price usually moves too
If you had instead bought this stock years ago at $80, your yield on cost today would be $4 ÷ $80 × 100 = 5%, higher than the 4% current yield a new buyer sees at the $100 price, purely because your cost basis was lower.
Four Things About Yield That Trip People Up
The yield went up after the stock price crashed. Is the dividend safer now?
Usually not. Yield rises mechanically when price falls, even with no change to the dividend itself. A sharp decline often signals the market expects a dividend cut. Treat a sudden, unusually high yield as a reason to check the payout ratio and cash flow, not as a discount.
I bought right before the ex-dividend date. Do I still get the payment?
Only if your purchase settled before the ex-dividend date. Buy on or after it, and the seller keeps that payment, the share price also typically drops by close to the dividend amount on the ex-date, which briefly distorts yield calculated right around that day.
Why is my actual deposit less than dividend × shares for a foreign stock?
Many countries withhold tax at the source, often 15% to 30%, before the payment reaches your brokerage account. This calculator computes the gross, quoted yield, not your after-tax cash yield. A foreign tax credit may recover part of the difference, depending on your account type and tax treaty.
Should I compare current yield or yield on cost before buying more shares?
Use current yield. Yield on cost reflects a price you already paid in the past and says nothing about whether today's price is attractive for a new purchase, it's a look-back performance measure, not a buy signal.
Disclaimer: This calculator is for educational purposes only and should not be considered financial or investment advice. Dividend growth projections are illustrative assumptions, not guarantees, companies can raise, freeze, or cut dividends at any time. Consult a qualified financial advisor before making investment decisions.